Question

The common stock of Eddie's Engines, Inc., sells for $36.83 a share. The stock is expected to pay a dividend of $2.80 per share next year. Eddie's has established a pattern of increasing their dividends by 4.9 percent annually and expects to continue doing so. What is the market rate of return on this stock

Answer 1

12.53%

Step-by-step explanation:

To find the market rate of return, we divide the expected dividend of the stock ($2.80) and divide it by the price of the share ($36.83), we then sum the result with the expected percentage increase of the dividend (4.9% or 0.049)

2.8 / 36.83 + 0.049 = 0.1253

= 12.53%